Federal Funds Rate in Monetary Policy Targeting Assignment Help Federal Funds Rate is the rate on the basis of which one depository banks lend funds to another depository bank. Our assignment help experts says that there are various advantages and disadvantages of using the federal fund rate in monetary policy targeting. Federal fund rate creates more transparency while targeting the monetary policy. This helps in making the monetary targeting more effective. Another advantage of using the federal fund rate is that it made the money supply pro-cyclical. Making money supply pro-cyclical is helpful in bringing stability in the interest rates. Moreover, implementation of federal fund rate in monetary policy provides benefits of signaling the policy-indented interest rate level. Stability in the interest rate helps in reducing the risk of loss and reduces the fluctuations in the interest rate.

Further, if any changes occurs in the interest rates than through federal fund rate these rates can be adjusted through open market operations. On the other side, federal fund rate also includes certain cons while doing the monetary targeting. Weakness in the link between monetary targeting and federal funds rate will produce ineffective results and affects monetary targeting as well. Targeting the monetary policy also leads to larger deviation and also results in larger volatility of output. Inflation creates fluctuations in the federal fund rate that affects the profits of the lending as well as borrowing bank. It has been analyzed that open market operation plays an important role in increasing and decreasing the federal fund rate. Another disadvantage is that, before targeting the monetary policy, market conditions have to be analyzed. It is not essential that prediction of the target market is accurate. Forecasting of the federal fund rate is a very difficult thing to be performed by the researcher. If you need finance case study assignment help then you can contact us any time.

Alternatives for Federal Reserve: In order to set targets for monetary policy, government can use repo rate as the alternative. Through the repo rate, the Federal Reserve can affect the cost of funding or the rate of return for various institutions. It can also be helpful for the Federal Reserve to give strength to the cost channel of monetary policy transmission. Repo rate can also be beneficial for the Federal Reserve because it is a more effective policy tool than the federal fund rate because of a border set of repo market participation. The repo market is a secured and a multi-trillion dollar money market that includes the depository institutions, primary dealers, investment banks, central banks, insurance companies, industrial companies, hedge funds, and mutual funds that impact on the monetary policy. In this, Federal Reserve can also use the discount rate to target monetary policy in the market. Discount rate is an interest rate that charged to commercial banks and other depository institutions on loans, they receive from their regional Federal Reserve Banks. The Federal Reserve Banks offer three discount window programs to depository institutions such as primary credit, secondary credit and seasonal credit.

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